STARBIZWEEK hosted a roundtable at Invest Malaysia 2009 with captains of industries to gauge their views on the measures unveiled by Prime Minister Datuk Seri Najib Tun Razak at the event as well as to pool their thoughts on what other issues need to be tackled as Malaysia takes the bold step to move towards a new economic model to raise the bar on the nation’s growth.
The roundtable participants included AirAsia Bhd group chief executive officer Datuk Seri Tony Fernandes, Malayan Banking Bhd president and CEO Datuk Seri Abdul Wahid Omar and Bursa Malaysia Bhd CEO Datuk Yusli Mohamed Yusoff. The session was moderated by The Star’s managing editor P. Gunasegaram.
StarBizWeek: One of the measures announced involves the demise of the FIC (Foreign Investment Committee). What is your opinion?
Wahid: It’s a very good move. To remove something that was there for 30 years takes a lot of courage. While the FIC had served its purpose, as we get into a new environment, we need to adapt and make policy changes that are relevant for the future.
In this globalised world, it is important for some of these hurdles, whether actual or perceived, to be removed.
Do you expect more companies will be interested in listing on Bursa Malaysia with the removal of the requirement for a 30% bumiputra allocation for IPOs?
Yusli: This certainly levels the playing field for IPOs. We previously had situations where promoters have said they would prefer not to list in Malaysia as other markets do not have such conditions. And it has been very difficult for us to counter that, especially when these companies had choices on other listing destinations.
It is now no longer an issue.
Tony, as an entrepreneur who started up an airline and then listed it on Bursa, is it some comfort to you that you now no longer have to keep checking if you meet the bumiputra equity requirement?
Tony: Yes. It’s just one more obstacle removed that was an issue in the past. It makes it easier and I think it’s a bold and good move. Anything that makes business simple is positive.
The other part of the Prime Minister’s speech that you may be interested in is about GLCs (government linked companies) not crowding out the private sector. I know that has been your beef in the past. What do you think might come out of this one?
Tony: I’m going to carry this speech with me for the rest of my life ... got it underlined as well! (laughs)
It’s what I’ve been asking for seven years. There’s space for all of us. I echo Yusli’s comments but in a different way – I’ve also always wanted a level playing field. Today, if that were fully implemented, then AirAsia would be able to fully unleash its potential. But AirAsia is only one of the many companies out there that could be bigger or better given a level playing field.
And so, we are thrilled by it. Some people say, “Will it be implemented or not?” You know, at least it’s been said. I think that’s a massive step forward.
But I don’t think crowding out is the main issue. I think (the issue is) where the regulators are very close with the incumbent and there’s a natural tendency to protect the incumbent as opposed to looking at the whole national objective. GLCs should be allowed to compete fairly and may the best man win. We have GLC banks and we have private banks and the industry is very healthy. They have gone on to international expansion.
So, crowding out is not an issue for us. It’s about having a level playing field and being well regulated so that the industry can grow.
Obviously, you are not very comfortable with Malaysia Airlines and Malaysia Airports (MAB) being owned by the same shareholder?
Tony: No, I’m not. I think, I’ve been very public about that. You are not going to get a level playing field there. Or, they can be owned (by the same people) but there must be an independent regulator.
Right now, nobody will know if I’m asking for too much or if MAB is charging too much. There’s no independent body looking at it and deciding on the right pricing mechanism.
What else is there to be done
What the PM announced today is the start of a series of measures that will probably be announced over a period of time. What more would you want to see the government do?
Wahid: Keep on doing the right thing. I’m all for creating a more conducive business environment, not at the expense of any particular segment or community.
Tony: We’d love to see a lot more liquidity in our stock market to create more excitement. If you look at the shares traded for Malaysia Airlines versus the shares traded for AirAsia, it shows a clear liquidity issue. And we need more independent boards.
Any specific ideas of how to increase the liquidity?
Tony: The guys who own it should sell down more shares to the public.
But there’s always the question of timing and pricing, right?
Tony: When is the right time?
Yusli: It’s a chicken and egg problem. A company’s value is unlikely to increase if it is too tightly held. So, everything needs to be done together. We need a very good business model, a good management team and adequate free float of shares.
(Inadequate) free float is an issue raised by many foreign investors. They say Malaysia has many good companies but it takes them too much time and too long (to trade shares). The friction cost of buying into shares is too high compared to other markets.
At the same time, when they want to sell the shares, it also takes awhile.
Liquidity is an issue and it’s a prime concern to us at the exchange.
Free float and GLCs
Wahid: Sometimes the definition of government-linked companies is too wide.
If you define government-linked investment companies to include EPF (Employees Provident Fund) and PNB (Permodalan Nasional Bhd), these entities are not government per se. For example, in the case of Maybank, the shares are mainly held by unit trust funds managed by PNB as opposed to PNB per se. So, it is owned by over three million people through the funds.
What is important is how you govern these entities. For many, there is a separate board that’s very much independent and the main shareholders are not on the board but they make sure they vote in people who have the ability to serve on the board.
The board has the flexibility to appoint management and go through the selection process, nomination and so on.
Tony: That’s exactly what I’m saying. The banking industry is a model example of how private companies and government-linked corporations can work together. That’s what I’m advocating.
Yusli: That’s why it’s very important to have the right environment. For the government, it should be facilitating and enabling.
We need to create a more dynamic and entrepreneurial environment. If there is too much government intervention, then it is curtailing. People will only do business if they have links with the government and I think that’s not the right kind of business environment we want to have in the country.
Wahid: The issue of free float is not just confined to GLCs but also many family-owned companies in Malaysia. That will have to be dealt with at the same time.
One of the main criticisms of the NEP was that the bumiputra equity requirement was a major hindrance to growth. Now there’s no such quota. The FIC has been disbanded which means anybody who wants to invest – foreigner, local, bumiputra or non-bumiputra – in a company no longer has to worry about constantly satisfying the equity requirement under the previous guidelines. What does this do for Malaysia, really and where do we go from here?
Yusli: Well, again it levels the playing field.
Tony: Someone else said it quite well – it brings us back to where everyone else is. It doesn’t bring us forward, but it brings us back (to the same level).
Yusli: We are very competitive as a country here.
Tony: But there was always that stigma. Now, we have removed the stigma so that I can go out there and market efficiently.
Wahid: It is a matter of perception. That policy had been there, but there have been so many flexibilities through extensions and waivers. At the end of the day, it was a case of `if it isn’t very effective, let’s remove it”.
What do we do next to improve the competitiveness of entrepreneurship in the country, which has admittedly, not been there?
Yusli: Entrepreneurs will always be where there are opportunities. Tony is a classic example, he saw an opportunity.
We must allow people to fail as well. We have to create an environment where entrepreneurs take risks. But, we must then allow them to come back up.
If we create an environment that is too safe and returns are going to be capped because of this, then we will kill the entrepreneurial spirit.
So, what needs to be done for that?
Tony: From an entrepreneurial standpoint, access to capital. One of the great things about America is that they keep on coming up with new technologies and these guys always had access to capital.
I’ve tried to get that capital before and it’s a nightmare. Some of them actually said they want security!
There has to be a mindset change that if you want entrepreneurs, you are going to have to take some risks and be prepared to lose.
Perception is very important. Entrepreneurs may say they can’t make a living here, so they go abroad. That leads to a huge brain drain. When I give talks abroad in universities, there’s one section that is always louder than the others and it’s always the Malaysians. Then I wonder, “why are they not here?”
It’s easy to say you want innovation but if you don’t create a conducive environment and there’s no freedom of speech etc, you will not get it.
Yusli: With the new ACE market we are setting up in August, you don’t even need a track record. If you can get a sponsor, you can tap the capital market.
Wahid: What is lacking is the variety of funds – venture capital funds, seed capital and so on. In many markets, those who put up this capital are not the government itself, but also the private sector.
It would be great if businessmen who have done well in their segment could allocate a certain portion of their wealth into high-risk capital for other entrepreneurs.
The taxi dilemma
Tony: There should be less regulation in some areas and more freedom of pricing to allow more people to earn a decent living and invest in businesses and grow the businesses. I think politics and business sometimes get too intertwined.
Wahid: So, (if) the government steps back a little bit, you may get all these entrepreneurs ...
Tony: (But) who’d want to invest in a taxi business, right now? As an extreme example, that’s the problem of inefficiency, poor quality and under-investment. In the end, who has to bail it out? The government and the taxpayer when the money can actually go to more productive areas.
What you are talking about essentially is the licensing of the industry itself.
Wahid: That’s a very important point. If you don’t allow economic prices to be in operation, then it’s a problem. The taxi fare in Malaysia must be the lowest in the world and it’s not sustainable. Because of the low price, how do you expect people to actually invest in proper vehicles, maintenance and so on. And also you get all these touts, people being fleeced.
If you can allow the price to be set at a more economic level, people can make a decent living and facilities can be upgraded and services improved.
Tony: Ultimately the market will decide. If you charge too much for the taxi, no one is going to use it anyway.
Wahid: But on the other hand, the government is also concerned about the cost of living. You increase the fare, it will affect consumers ... For the New Economic Model, if we can actually migrate to a high income model, then these aspects will be addressed.
Setting the tone
With the measures announced today, do you expect to see investors or businesses flocking in or is there so much more that remains to be done to pitch our appeal?
Tony: It’s a start. It gets rid of one major impediment and brings Malaysia back to an even keel.
Secondly, I don’t believe it is all about foreign direct investment. I think it’s about our own people creating economic value and growing and building more AirAsias, IOIs, a bigger Maybank, a bigger CIMB ... We can’t just rely on foreigners coming in. Let’s be frank; they are only loyal to the lowest cost providers. We have got to look out for ourselves.
When you say investors, everyone thinks of foreign investors. There is a lot of local money here. And there is a lot of local money outside, which we need to bring back.
Yusli: The ability for investors to invest has to be made easy. And take off whatever your procedure is. Because when we aspire to move towards this new economic model, it does require a lot of investment. So businesses today are probably doing medium or low cost or low value type of businesses. We need to reinvest so that they can move up the value chain. So any reforms to enable that to happen faster, cheaper, easier will help.
Wahid: It is the job for the government to make sure the economy prospers. The ultimate beneficiary must be the people and so, social well being is very important. This is why we are looking at increasing our income per capita. It is no secret that KL has actually the cheapest property in terms of the Asean countries. It doesn’t make sense; we are much better off economically compared to many of our neighbours and yet, our property prices in the capital is very much lower. Once we are able to remove this, then the normal economic pricing level will come back. That’s when people will start to pay proper prices for the services.
Any further thoughts on what the Prime Minister has said today?
Tony: The timing is right. Recession is a great time to re-evaluate. We should grab this opportunity to look at the mirror, relook at what we are good at, capitalise on that, look at what we’re bad at and change it and move forward.
Wahid: I am comforted by the move to make the capital market more liberal and the enforcement mechanism more solid because there had been times when people had actually flouted the law and got away with it through various impediments. That greater power is given to the SC to prosecute, I think is most welcomed.
Yusli: The reform programme must continue. The FIC announcement is huge from our market’s perspective but we need to move on and address some of the other issues, like liquidity. We need to engage a lot of stakeholders – the government is one of them and the others and we need to convince people about our selling points.
The Prime Minister has announced a slew of measures since he took office not too long ago. As captains in your respective industries, what is the tone he is setting which you think most stands out?
Tony: The desire to change and make the hard decisions. He really wants to make an impact. And to change for the better.
He’s only been there (PM) for 89 days and a lot has happened. Willingness to change is key. And there is sincerity in the desire to make Malaysia a much better place.
Wahid: In terms of the number of measures, I don’t think I have ever seen so many measures being introduced in a single speech. That stems from a desire to change. And it is actually our duty to support him in this journey. This is not an easy period to introduce all these changes in this environment. It takes a lot of courage to do that. And that courage must be supported by people like us to actually implement this.
Yusli: It is the seriousness of the reform programme, which I think is important. And it needs to be followed through. One of the biggest criticisms or comments about Malaysia has always been that we are good on announcements but when it comes to implementation, we do not follow through. So what the rest of us can do is to make sure that we are also in the same reform programme.
Malaysia doesn’t have a choice. Otherwise we are going to be stuck in this middle income trap, between a low-cost economy and developed economy. We have to make that shift.
Dire need for reform in education
Tony: Someone from the panel (earlier) talked about where all the money from Petronas went. I have no idea but the money should go into productive (areas). Subsidies should go to the right people. With all due respect, when fuel was subsidised, it was crazy for the three of us to receive subsidised fuel. I’d rather that money go into education. I think in this day and age, it’s ridiculous to have afternoon schools. It’s very disruptive to the child. The afternoon should be play time for children to be creative and innovative, whether it’s art, music or drama.
Malaysia is 10 years away from being developed and we don’t have enough schools?
This is where how best we spend money is important as opposed to providing subsidies everywhere and not having enough money to build schools.
Yusli: Schools should be built right the first time. We built many schools. But not all are being used properly.
What do you have to say about the education system?
Yusli: If we want to create a quality population, we need to start with the young. It has to start from a very early age – from kindergarten all the way up. Otherwise, our graduates will not be employable for whatever reason. Focus should be on quality,
Wahid: One of the major differences at the moment is the people in the profession. We had the benefit of high quality and dedicated teachers then. Over time, we have not invested enough in teachers.
Tony: Back to my taxi argument – how much are we paying teachers? Taxi drivers are not getting enough, so you get the worse of the worse who are not employable anywhere else.
Would you rather move into the teaching profession or work for Maybank? This is the problem that has caused us to lose (talent) everywhere. How much do we pay? What quality do we get for that? That is a major issue.
Yusli: From the aspect of the new economic model, for Malaysia, it should be more about investing in software. In terms of hardware, we hear about countries having the first world infrastructure but second or third world mentality. We need to ensure that we don’t fall into that category. We need to have first world infrastructure and first world thinking. And that to me, is the by-product of education.
Tony: The product we’re getting from schools is not (that) bad ...
But that’s because you’re a preferred employer ...
Tony: Well, we have had to work on our product, change the thinking process and get more expressions out there. We have 6,500 brains working for us, as opposed to just 10 brains and the rest just implementors. That is our secret in AirAsia.
But the school system has to change and I agree with Wahid, that the teachers are key attributes. How many kids now have extra curricular activities? Where do you get your first management experience? On the sports field. Where do you get your first team work experience? On the sports field. Where do you get your first chance to express yourself? In the debating society, or the drama class. That’s where we’re lacking. The teachers then did a few things – they’d teach in the morning, coach football in the afternoon, or they’d run the drama class.
What about closing the wide gap between the government and private schools?
Tony: Absolutely. There shouldn’t be a second class and a first class. Sweden has a fantastic system. Where there’s a very strong private system, there’s a very good public system which is comparable and it’s up to you to choose. They should run concurrently ... so as not to burden the state with building so many schools and forcing everyone to go through that system when there could be choices available.
Fair regulation and simplifying bureaucracy
Can you elaborate on the point about less intervention from governments and fair regulation?
Tony: We have MCMC (Malaysian Communications and Multimedia Commission) which does a very good job regulating the telecommunications industry. Celcom, Digi and Maxis all compete but no one has a huge advantage over the other. The same for the banking industry that is regulated by Bank Negara. Where there is fair regulation, there is effective pricing controls.
So, in the case of aviation, you are saying there is no single regulatory body?
Tony: That’s confused between MOF (Ministry of Finance) and MOT (Ministry of Transport), and then sometimes, EPU (Economic Planning Unit). There is no aviation blueprint. How do we make the ministries more efficient? For example, banking is controlled by one body, more or less. But in tourism, which is a big contributor, there are so many different parts. Taxi is a key component of tourism and hotel development. But many of these segments come under various ministeries. What I would like is a simplification of the bureaucracy so that it is easier to do business.
Wahid: We have time. From the planning perspective, we are at the tail end of the 9th Malaysia Plan. When we get into the 10th and 11th Malaysia Plan leading up to 2020, there is opportunity for the government, for the new leadership, to spend more time to articulate what we want to achieve by 2020 and how do we get there.
I think there will be a lot of engagement with the government and the respective ministries and to give them ideas and suggest solutions.
I’m happy that this government is a listening government. There’s a lot of engagement behind the scene and a lot of input is being solicited.